Consumer Watchdogs Growl at Wireless Cos.

MANAGUA – In consumer-defense offices throughout the country, corporate rascal Unión Fenosa is being challenged for its inglorious and perennial distinction as the most-denounced company in Nicaragua.

Closing ground behind the unpopular energy-distribution company are cell phone service providers CLARO and Movistar, who consumer watchdogs claim are ripping off customers with misleading promotional offers and a series of other questionable business practices.

Marvin Pomares, director of the nongovernment Nicaraguan Consumer Defense Institute (INDEC), which has branch offices throughout of the country, said his organization is giving the cell phone companies until Dec. 1 to change their ways, or else his organization is going to take to the streets to increase public pressure on the transnational telecom giants.

The two companies have already made several timid concessions in response to public pressure. But Pomares says profound change is needed.

“We’ll give them (until Dec. 1) to comply with the law,” Pomares told The Nica Times in a recent interview. “If the situation is the same, we are going to protest with marches in the streets because we can’t continue putting up with this; it’s a terrible fraud.”

The problems, according to consumer rights groups, are numerous: users are being overcharged for talk-time, tricked by misleading promotions, unknowingly charged for “extra” services and required to use a basic service with unclear and constantly changing rules and rates.

“When a client buys a cell phone, he or she signs a contract, but the company doesn’t explain clearly how much a minute of talktime costs, how long purchased credit lasts, or how much the bonus minutes are worth,” Pomares said. “So clients just have to adjust to (the company’s) rules after they buy the cell phone.”

Adding to the messiness is the fact that cell phone companies are regulated by an antiquated telecommunications law that was written before cell phones even existed here.

Though the government has since passed a separate set of technical regulations for wireless providers, the law is weakly enforced and telecom companies essentially have free rein, according to consumer rights advocates.

“The whole cell phone industry here is organized chaos,” Pomares said. “Clients are completely defenseless.”

Ricardo Osejo, director of another private organization, the National Consumer Defense Network (RNDC), agrees. Under The Telecommunications Law (Law 200), he says, “cell phone users have no rights.”

CLARO, the only wireless service provider with complete national coverage, is part of América Móvil, the telecom conglomerate owned by Mexican billionaire Carlos Slim. CLARO has 2.2 million users in Nicaragua, representing the majority share of Nicaragua’s cell phone market.

Movistar, which belongs to Spanish telecom giant Telefónica, has an operating license to cover the Pacific coast, where it has slightly less than 1 million users.

Together, the two companies represent 3.1 million users nationwide, meaning more Nicaraguans have cell phones than access to drinking water in their homes. Nicaragua has the best wireless coverage in Central America, but also the highest rates.

Dollars to Córdobas

Though consumer complaints against the two cell phone companies are nothing new, they have been increasing exponentially over the past month, especially against CLARO, consumer defense leaders say.

Pomares says INDEC offices have fielded more than 1,800 consumer complaints against the cell phone companies in just the past two weeks. He said the deluge of complaints started in late October, when CLARO switched from charging clients in U.S. dollars to charging them in córdobas.

The move was allegedly intended to make it easier for users to buy talktime in any amount of córdobas, rather than the old system which allowed users to purchase credit only in phone cards available in predetermined dollar denominations. But instead of making things easier for users, the dollars-to-córdobas move has been fraught with irregularities, Pomares says.

He says the first glaring problem occurred the day CLARO made the switch and all of its users suddenly lost their previously existing talktime credit that had been purchased in dollars. People’s talktime accounts – or saldos, as they are called here – were magically erased, resulting in untold millions in loses to customers, Pomares said.

“We had one man come in here the next day and complain that he lost $850 in credit, another who said he had $500 and another who had $300,” Pomares said. “(CLARO) never told (customers) they were going to lose their accounts” when they switched from dollars to córdobas.

Most of the consumer complaints, however, are related to CLARO’s new policy of purchasing credit in córdobas, as well as other misleading promotional offers, Pomares said.

Since CLARO replaced its old phone-card system with the new electronic “recargas,” where authorized vendors automatically credit a user’s account by phone, consumers have been exposed to new over-billing methods that didn’t exist before, Pomares said. Many corner stores have been charging extra commissions of 5 to 10 córdobas to credit a user’s account.

Pomares says many vendors – usually corner stores, cyber cafes and pharmacies – are charging the “extra” (and unauthorized) commission because CLARO is paying them an infinitesimal commission of 4 percent.

“For every 1,000 córdobas they sell in talktime credit, they get paid 40 córdobas in commission ($2) – and sometimes it takes vendors days just to earn that,” Pomares said.

Talktime Restrictions

There are also a growing number of consumer complaints about restrictions on how talktime credit can be used, and how much time clients have to use their minutes before they expire.

Pomares says CLARO customers are complaining that their credits are expiring in less than 30 days, or come in the form of “bonus minutes,” which Pomares claims is a misleading term for restrictive talktime that applies only to people using the same service provider.

In addition, many of these restrictions are wrapped up in confusing “promotions” that consumer watchdog groups claim are “fraudulent offers.” For example, they say, CLARO bombards its clients with text message invitations to “triple your account by purchasing credit today.” But the promotion is really a case of bait-and-switch, critics say, because the extra talktime that clients receive comes in the form of restricted-use “bonus” credits, which expire faster than milk.

Osejo, of the RNDC, said the cell phone companies have no right to place arbitrary restrictions on how and when a client uses a service that he or she has already paid for.

More broadly, the consumer watchdogs allege, the phone companies – CLARO especially – are not being transparent regarding their constantly rotating carousel of promotions, despite legal requirements to do so.

“They are hiding part of the information that users need to know,” Osejo said.

Cell Phone Companies Respond

In response to growing consumer pressure, CLARO quickly made several concessions last month. The company released a communiqué instructing its vendors to not charge extra commission for talktime, and calling on users to not pay additional fees for their “recargas.”

“CLARO makes it known publicly that it is not our company’s policy to overcharge for the sale of phone cards or electronic talktime credit,” reads the company release.

As an additional goodie, CLARO agreed to extend the shelf-life of its “bonus” minutes to the full 30 days and lifted the restriction on their usage, meaning customers can now use their bonus minutes to call Movistar phones as well as numbers in the United States and Canada.

Movistar responded similarly, calling on its clients to not spend extra on “recargas” and by lifting the restrictions on its “promotional” minutes.

Talktime purchased from Movistar will now last 90 days, while the “value-added” promotional time will last 60 days, according to company spokesman Mario Santiago Vásquez.

New Law Needed

While consumer rights groups have won some minor concessions in past weeks, Pomares and Osejo say it’s imperative that Nicaragua pass a modern telecommunications law that corresponds to 21st century technology and sets clear rules to protect the rights of consumers.

The legislative National Assembly is currently drafting a new telecom bill. It is consulting  with various sectors of society in hopes of passing a new law during the first half of 2010.

But until new legislation is passed, consumer defense advocates expect the complaints to keep coming.

“Unión Fenosa is still in first place (on the list of consumer complaints),” Pomares said. “But at this rate, in another couple of weeks the cell phone companies will take over the top of the list.”